Julie Broad (& Dave Peniuk)
 
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An Alternative to the Traditional Lenders
Private Money: An Introduction For Borrowers

by Shannon Quickfall

How many of us have found a great deal but, for various reasons, just could not secure sufficient financing to make it work? Or how many of us have been in a deal where we needed refinancing but could not get it on the terms that we wanted? When that happens, we end up watching that opportunity pass us by - and in some cases there was a solution! There was a way you could have secured the financing you needed to close that deal.

Private lending is often an overlooked solution to financing problems. isconceptions, myths and mystery surround private lending.

There are a variety of lenders that could be called private lenders, for which the fees and costs of financing vary substantially. The focus of this article is to discuss private individual lenders, not institutions or investment corporations. The private individual lender can be difficult to access and so many borrowers end up with private institutional lending which can be more costly when fees are added in. Some of the benefits to using a private individual lender is that, in many situations, there are more opportunities to customize the mortgage that the borrower needs and, in many deals, fees can be lower than other institutional private sources.

How does private individual lending work?

A mortgage broker who specializes in private financing can help a borrower find an individual who will lend 'privately' (i.e., not through a bank or institution but directly on their personal behalf) on a property. An individual lender seeks a better return than bonds and does not want the risk of the stock market; instead, an individual lender wants to make money off of real estate without directly owning it.
 
A private mortgage is generally short term in nature (typically 12 months), is secured by real property, and the return is the interest that the borrower pays with, possibly, a lender fee.
 
The lender will make an offer on the mortgage stating the terms that they require to lend the mortgage. There can be a negotiation and private lending offers opportunity to tailor mortgage requirements more so than an institution who only offers certain mortgage products that may or may not be open and may or may not have other requirements. When an agreement is reached, a lawyer or notary will prepare the necessary documents and a charge will be registered against the property just like any other mortgage. Private financing does cost more that conventional financing, and private money is a market like any other which is moved by supply and demand; the price of which fluctuates accordingly.

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